What is the Difference Between a Bull and a Bear Market?

Being able to distinguish between a bull market and a bear market is extremely important. This determination is one of the deciding factors underlying everything from government policy to consumer purchasing trends. Here is a breakdown of the most important differences between a bull market and a bear market; and how to recognize both.

Bull Market

“Bull market” is an expression for a financial market which is either currently experiencing growth or which is expected to experience growth. The most important signifier of a bull market is investor confidence. The more optimism there is about the fate of a particular group of stocks or the stock market in general, the more investors will trade to maximize their profits. The nature of this expression comes from the way that a bull attacks an enemy. When approaching a threat, a bull will lift its horns upwards, thus representing investors and their upward trending investments. As a general rule, a bull market is identified by investment prices that are increasing faster than historical precedents.

Bear Market

“Bear market” is an expression for a financial market that is either expected to lose value or which is currently losing value. Investment prices drop during a bear market; and generally, investors will off-load shares of poor-performing stock or hold onto shares in the hope of a later recovery. Bear markets are significantly affected by investor psychology; and these effects can be magnified by the anxiety caused by a contracting market. This expression comes from a bear’s characteristically downward swiping paw. It is still possible to profit during a bear market, but investors must proceed with extreme caution.